According to the PitchBook-NVCA Venture Monitor report, the activity for venture capital fundraising was robust during the first quarter.There were nearly 3,000 deals that raised over $34 billion, up from 2,800 deals for $31 billion in the previous quarter.
But of course, with the COVID-19 pandemic, the volumes will probably look much worse in the second quarter.Part of this will be the challenges in getting more clarity in certain markets, such as in travel and transportation.But there are also logistical issues because of the stay-at-home orders.
Yet deals are still getting done.“We’ve seen about half a dozen of our clients raise money in the past couple of weeks,” said Healy Jones, who is the VP of FP&A at Kruze Consulting.“Founders who were thinking about raising shifted into high gear and got raises done.Note that these were all strong startups, even if they were being impacted by the downturn.Everyone raised from VCs who they already had a relationship with.VCs don’t seem to be taking a lot or any meetings with ‘new’ startups, though.The VCs really seem to be doing meetings with existing investments to help the CEOs figure out how to navigate the crisis more than anything else.”
Yes, it’s a challenging environment—and it could easily last awhile. So then, what are some things you can do to help boost your odds of success with funding?
Well, let’s take a look:
Vasudev Bailey, partner at ARTIS Ventures:
Easy wins:
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1) Try video over phone calls—ensure you've tested the software before so that you don't start the meeting with "oh, technology and video conferencing fails, right?"
2) Have references available from other investors/customers that you can help setup to move things along.
Nice Touches:
1) If it's a group pitch, try and follow up 1-1 with the VC after so that they can get to know you.
2) Don't make everything about COVID-19. Too many people use this as an excuse.
3) Help in providing a sense of timing / next steps
Sonya Brown, General Partner at Norwest Venture Partners:
Despite today’s complex COVID-19 environment, there is still an opportunity for startups to raise funds at this time. And once you’re in the “virtual” door, it’s all about thinking like an investor. Here are some of the things we evaluate when we’re looking at companies:
Work your network: If you have a prior relationship or met a firm before in person, that’s going to significantly increase your odds in today’s climate. It’s an inopportune time for cold calls.
Address risk with transparency: While predictions are near-impossible to make as COVID-19 rocks every industry, companies have the opportunity to go in-depth and provide the data investors are looking for to address risk in today’s environment, while bringing ideas to the table on how to pivot the solution to meet market needs in light of COVID-19.
Henrique Dubugras, the Co-CEO and Co-Founder of Brex:
Be clear with your investors about when and how much funding you need and how it will be deployed—demonstrating vision, confidence and clarity.
Position your requests around specific milestones and have everything ready to share—presentation, model, supporting schedules (unit economics, cohorts, margins, etc.)
Dean Sysman, CEO and cofounder of Axonius (the company raised $58 million on March 31st):
As a result of COVID-19 travel restrictions, we had to close our Series C round remotely.This didn’t change our process drastically, knowing the deal was in its final stage, but it got me thinking about what companies that are just beginning this process should do.
For the most part, the lack of in-person time means that entrepreneurs need to stick to the fundamentals of fundraising more than ever. My advice for companies looking to begin the fundraising process in the midst of COVID-19 is to first try to gauge the true interest of an investor through a dialogue of actions rather than talk. If the VC reciprocates actions from their side, you know you can build that relationship, even remotely. This also means really understanding the VC team you’re working with and keeping them all in the know. When you’re remote, it can be difficult to keep an entire VC in the loop vs. your point person. But the most critical decisions are usually made through a VC team.
Next, use this as an opportunity to prove yourself as a leader in both “peace and war.”Times of uncertainty can be the best time to give investors confidence that you can handle tough circ*mstances.
Karim Nurani, the Chief Strategy Officer at Linqto:
There will be a lot more work needed to identify the investors that fit the entrepreneur's profile and needs. There will be fewer opportunities "at bat "--so the prepared deck needs to be way better in articulating the business models, market opportunities and return for investors.
Andrew McClure, a principal at ForgePoint Capital:
Investor pitch decks are often filled with rosy projections.But entrepreneurs need to be clear-eyed about prospects to the business as economic tailwinds reverse.How does the company navigate a downturn?As the market adjusts, new projects may be postponed or canceled.Can the company not only ride out the storm but find new opportunities to position favorably as the economy recovers and become a market leader in the category?
Matthew Cowan, General Partner at Next47:
Recognize that you need to make your offering as tangible as possible to investors. Prepare a digital demo so that investors can feel they are getting as hands-on an experience as possible
Also the meeting attendees should be as narrow as possible. Too many people in a virtual meeting can make it harder to be productive
Chris Lynch, the founder at Accomplice VC:
Focus on established personal relationships but don’t be afraid to network if you truly have a great idea. Build a bullet-proof case for investing in the technology and showcase why it is ‘recession proof’ and able to support key global megatrends–larger remote workforces, the need to do more with less, the augmentation of existing technologies and the delivery of superior ROI by appealing to e-commerce/better customer experiences.
Victor Boyajian, head of the Global Venture Technology practice at Dentons:
Be flexible on the valuation where you have found the right investment partner, but don’t be afraid to negotiate for adjustments should the company hit performance thresholds.
Make sure your management teams have seasoned team members that have gone through downturns.
Cast a wider net of potential venture firms but also stick more closely to those with deep sector expertise.
Recognizethat you may need to push off fundraising until June but focus like a laser on building out the model.
Tom (@ttaulli) is the author of Artificial Intelligence Basics: A Non-Technical Introduction and The Robotic Process Automation Handbook: A Guide to Implementing RPA Systems.
